Portfolio Efficiency and Discount Factor Bounds with Conditioning Information: An Empirical Study

Can Stochastic Discount Factor Models Explain the Cross Section of Equity Returns?

PurposeThe study attempts to examine the bias-adjusted financial and operational efficiency estimates of microfinance institutions (MFIs) operating in the Eastern Europe and Central Asia (ECA) region during the financial year 2017–2018. In addition, the study also identifies the responsible factors determining the financial and operational performances of MFIs operating in the ECA region.Design/methodology/approachThe study employs two-stage bootstrap data envelopment analysis (DEA). In the first stage, the authors incorporate the bootstrap procedure in the DEA framework as suggested by Simar and Wilson (2000) to estimate the bias-corrected efficiency scores of 67 sample MFIs. In order to identify the drivers of efficiency level, the study deploys the bootstrap truncated regression model following the Simar and Wilson (2007) guidelines in the second stage of analysis.FindingsThe authors note from the empirical results that MFIs operating in the ECA region are relatively more financially efficient (0.588) than socially efficient (0.496). However, none of the MFIs were found to be operating at best-practice frontier while considering the bias-adjusted efficiency estimates. Further, the results of second stage of analysis confirm that corporate governance, that is, board size has positive and statistically significant impact on MFIs’ performances. In addition, the bad credit quality deteriorates both financial revenue and operational efficiency. Moreover, the MFIs’ size, profit status and debt-to-equity ratio were also found to be statistically significant to determine the operational and financial efficiency of MFIs in the ECA region.Practical implicationsThe study provides the robust efficiency estimates and factors responsible to determine the financial and operational efficiency of MFIs operating in the ECA region. Further, the empirical results of the study provide the inputs and further direction to the policymakers, regulators, practitioners and managers in framing the policy and optimal operating strategies for ECA MFIs industry.Originality/valueThe study extends the DEA analysis by incorporating the bootstrap procedure in DEA model to estimate the bias-adjusted efficiency scores which are more reliable and robust. In addition, bootstrap truncated regression has been applied to identify the drivers of efficiency. Moreover, in the literature there is no single study which has deployed the double bootstrap DEA framework to examine the financial and operational efficiency estimates and its drivers.

In the perfect and unrealistic Black and Scholes (J Polit Econ 81:637–659, 1973) world, the dynamics \((S_{t})_{t\in [0,T]}\) of the risky asset, under the historical probability \(\mathbb{P}\), is given by the following stochastic differential equation: $$\displaystyle{ dS_{t} =\mu S_{t}dt +\sigma S_{t}dW_{t} }$$ where \((W_{t})_{t\in [0,T]}\) is a standard Brownian motion under \(\mathbb{P}\). In this case, there is no ambiguity in the definition the arbitrage-free price of any European contingent claim with maturity T. In fact, in this complete market which is set in continuous time, this value is none other than the value of any replicating portfolio. Moreover, prices may be expressed in terms of conditional expectations under a unique equivalent martingale measure Q whose density with respect to the historical probability is given by the Girsanov theorem $$\displaystyle{ \frac{dQ} {d\mathbb{P}} = e^{-\frac{\mu -r} {\sigma } W_{T}-\left (\frac{\mu -r} {\sigma } \right )^{2} \frac{T} {2} } }$$ where r is the constant and continuously compound risk-free rate. Unfortunately, as we have seen in Sect. 2.1, the restrictive underlying hypotheses (constant volatility, independent increments, Gaussian log-returns, etc…) are questioned by many empirical studies and GARCH models appear as excellent alternative solutions to potentially overcome some well-documented systematic biases associated with the Black and Scholes model.

An Empirical Study on the Stock Price Reaction to Earnings Announcements using the Stochastic Discount Factor Approach

Identifying the type of organization for achieving social efficiency for agricultural development remains a challenge. In this study, the relationship between the financial and social efficiency of South African agricultural cooperatives was examined. Data, comprising 1788 agricultural cooperatives, were obtained from the Cooperative Data Analysis System database. Only 387 observations without missing values were predicted in the empirical model. Data envelopment analysis scores for the financial and social efficiency indicators were computed. A two-stage residual inclusion method estimated the social efficiency model. The results show that social efficiency is positively influenced by financial efficiency and other factors. These include the number of employees, the enterprise type, and compliance with internal control practices. The social efficiency of agricultural cooperatives decreases for institutions that have recently been trained and that comply with the annual financial audits and profit tax. Social efficiency also decreases with age, but it increases with the square of the agricultural cooperative’s age. This suggests that financially-efficient agricultural cooperatives may achieve social efficiency, that young agricultural cooperatives are not the ideal candidates for addressing the social efficiency challenges of agricultural cooperatives, and that the current training received by agricultural cooperatives does not empower them with social efficiency.

Microfinance institutions (MFIs) provides savings, credit, insurance and remittance facilities to more impoverished people without any collateral. MFIs have twin goals: social outreach and financial sustainability. Outreach refers to how many people are served by MFIs while the capacity of MFIs to serve longer is financial sustainability. The social and financial performance of MFIs is the most debatable issue in the Indian microfinance industry. Social efficiency indicates MFIs’ willingness to support a higher number of poorer consumers while financial efficiency indicates how long financial services can be offered to the poor by institutions. The success of these organizations is very critical for the continuity of funding support for donor agencies and the government. Using data envelopment analysis (DEA) techniques this paper calculates the efficiency of Indian NGO–MFIs. The research also uses Tobit regression to estimate the factors of the efficiency of MFIs. The data is taken from the Microfinance Information Exchange for the period 2009 to 2015. Results indicate that NGO–MFIs are financially more efficient than social ones. Regression findings show that the critical variable for the financial and social efficiency of NGO–MFIs is operational self-sufficiency (OSS). Very few empirical studies are available in the Indian context that discuss the efficiency of Indian NGO–MFIs. The present paper provides standards for performance measures of NGO–MFIs operating in India to assist in improving the performance and growth of microfinance firms.

Hedge fund strategies, performance &diversification: A portfolio theory & stochastic discount factor approach

Investment Opportunities in Central and Eastern European Equity Markets

Portfolio Efficiency and Discount Factor Bounds with Conditioning Information: A Unified Approach

Hedge Fund Performance Evaluation: A Stochastic Discount Factor Approach

In this paper, we address two issues: the small sample variability in estimation of the parameters of female labor force participation models with dichotomous dependent variables due to random variation across small samples; and whether large-sample estimates of discrete-choice models yield the same results. In the first case, both logit and profit models exhibit similar patterns of parameter instability in 'small' samples and that a sample size of over 10,000 observations is required to reduce the issue of sampling variability to acceptable levels. In the second case, both models generate similar qualitative results in large samples; however, even in the largest samples, the quantitative results generated by these models diverge significantly. Coauthors are Zhengxi Lin, Lars Osberg, and Shelley Phipps. Copyright 1994 by Blackwell Publishing Ltd

The purpose of the article is to assess the relationship between financial efficiency and environmental efficiency in the meat and poultry industry in Poland between 2010-2020. Firstly, the assessment of financial efficiency in the area of profitability was underdone. Secondly, the environmental efficiency in the area of selected environmental policy components was assessed. Based on the results, the author built an econometric model examining the impact of binary variables on individual financial efficiency indicators in the area of profitability. The study consists of theoretical and practical parts. In the theoretical part, methods of analysis, synthesis, comparison and graphical transposition of data were used. In the practical part, quantitative methods: ratio financial analysis, ANOVA method, panel econometric modelling, and qualitative methods – case studies, were used. The study shows that for financial efficiency, the values of the net sales profitability ratio are statistically significant. The most important factor for environmental efficiency are consistently implementing transparent environmental policies. The practical implication of the study contributes to financial support for the meat and poultry industry in Poland. The social implication of the study is the urge to implement the principle of sustainable consumption.

We examine the performance of U.K. unit trusts between January 1982 and December 1996 within the stochastic discount factor approach across a wide class of models. No one model dominates the others in correctly pricing passive portfolios or detecting superior performance for hypothetical trading strategies. We find no evidence of significant superior performance by the unit trusts for any model of the stochastic discount factor. Also, the charges of the trust have a mixed effect on trust performance.

Are good-news firms riskier than bad-news firms?

Bond Pricing When the Short Term Interest Rate Follows a Threshold Process